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Sunday, February 9, 2014

Building a startup is hard. We all know that already. But building a startup that focuses on the enterprise is very hard. Now if that startup is supposed to deliver a product or service that wants to compete globally, that's a totally different level of difficulty and uncertainty. That's also why most enterprise startups focus on a certain area or region rather than going against the technology giants of the world.

The Philippine is no exception to this case. In this country, technology adoption is driven mainly by the telcos (for both consumer and business) and multinational tech firms (mainly for business). Then you have the system integrators that work with the multinationals and the tech firms. There are also firms that develop enterprise software but only for specific clients, not as products to be released on its own.

There are consequences for this. First, we don't get enough chance to build our own intellectual property. Second, we become too dependent on foreign technology for our companies to become productive, so the bulk of money goes outside the country rather than revolving internally.

There is also a perception that locally made technology is inferior compared to one made in Silicon valley or in Hyderabad. I've encountered this a couple of times not just with individuals but also firms. But before that happens, I go back to the main point of contention, that local enterprise startups are very hard to start and sustain.

Let's compare a startup that builds interactive stuff, be it games, consumer driven websites, and such, to one that builds an enterprise solution, let's say cloud, storage and the like. A typical interactive/game startup will require less capital outlay but rely on a lot of brainpower/IP to come in. An enterprise startup will most likely require at least 10x capital because of the backend equipment, network, datacenter and such. Research and Development would also be a huge factor. Then you have to set the expected Service Level Agreements (SLAs) to your customers. Are you setting up a 24x7 operation? How about on-site? Those are just a few technical questions that you need to consider. How about sales? Marketing? And Training? More questions that need to be answered. Then how will you reach to prospective customers? Do you do cold calls? Exhibits? More budgets needed for that.

That's why enterprise startups tend to partner with local telcos and multinational tech firms to offset some of that cost, be it in marketing or even in development. Imagine a lamprey and that tries to attach itself to a shark. What if the shark finds a way to remove the lamprey? Then the lamprey will have to find another shark to attach with. Or find a smaller fish. If it can't then the lamprey will die. That's how a small enterprise startup would approach the local market.

Friday, February 7, 2014

Last year, a new technology buzzword became mainstream: Cryptocurrency. And with it a hot product called Bitcoin.

In a nutshell, Cryptocurrency is a digital medium of exchange that is designed to be a replacement of money in its current physical form and can be used not just for online, but physical transactions as well (imagine using your phone to pay for an item at a convenience store but what you paid in digital form is widely accepted as money and not just tied up with a bank or credit card account).

In simpler terms, Cryptocurrency is a new form of money designed for the digital economy. Except that only the community of users who believe on that Bitcoin is driving the value, not like traditional fiat money.

Bitcoin started in 2009 but only became wildly popular (and getting more valuable) in 2012 when intrepid online stores started accepting them as payment. Since the transaction or payment charges for Bitcoin is way smaller than that of a bank, it makes more sense for retailers to use it.

Of course, any currency is only useful if it can be equated in value with an existing, globally accepted form of exchange, in this case the US dollar. As of January 21, a single Bitcoin (or BTC) is worth $963 in the market (from Mt. Gox exchange in Japan). It’s possible to own only a fraction of a Bitcoin with a “Satoshi” as the smallest fraction equivalent to 0.00000001 BTC (or in simpler terms, 100,000,000 Satoshi = 1BTC).

What is amazing with Bitcoin is that all this value is being driven by the community of users in the Internet, with very little intervention from governments and monetary authorities.

Because of Bitcoin’s decentralised nature, there is no governing authority over it except the actual community of Bitcoin users itself who dictate demand and supply in a global scale thanks to the Internet.

But its decentralised nature is also Bitcoin’s weakness (and cryptocurrency in general): it is highly susceptible to fluctuation in value.

Last December 2013, the Chinese government made a sweeping ban on Bitcoin in the country by disallowing banks to engage on Bitcoin exchanges and other transactions. This caused the value of Bitcoin to crash to $400 level but eventually recovered a few days after.

But the ban only made getting Bitcoin in the country harder, but not impossible (they didn’t ban the actual use of cryptocurrency). Singapore and Germany took a more progressive, if not simpler view on Bitcoin by recognising it as a good rather than a currency, so that the usual tax practice will apply.

In the Philippines, there is no talk of regulation of ruling yet on Bitcoin and cryptocurrency in general but I’m sure it will come out soon as exchanges have started to set base in the country. I’m guessing before the current administration steps down.

Recently, BuyBitcoin.ph was launched, allowing Filipinos buy and sell Bitcoins. As of this writing, they are selling at P35k level and buying at close to P40k (per Bitcoin).

Because of Bitcoins success (and still surging) and open source nature, interest on other forms of cryptocurrency has flourished. Trading site Cryptsy alone lists 60 cryptocurriences being actively traded, with Litecoin (LTC) being the next most popular (currently valued at around $25 per LTC), and Dogecoin (DOGE) which started as a joke (it is based on a the “Doge” internet meme) but volume of usage surpasses all cryptocurrencies in the market.

While this piece is being written, the Jamaican bobsled team was able to raise DOGE 26.5M (worth $30,000) to get them to play in the upcoming Winter Olympics in Sochi, Russia.

Despite the progress of cryptocurrency and Bitcoin has to offer, it still has a long way to go to become more mainstream.

First is access. Getting Bitcoins is easier through an exchange but you have be willing to pay for it and accept the volatility risks. The other way is by “mining” for Bitcoins, that is, using your computer to create them along with other miners through P2P.

The Bitcoin system was created to have only 21 million BTC in circulation by the year 2140 and each successful mine will yield 25 BTC and for every year, that circulation becomes more restricted as the system reduces the mining reward by half.

So imagine the private arms race happening right now by people trying to mine as much Bitcoins as possible with very powerful and specialised mining rigs called ASICs. There is no way you can mine as fast as those professional miners unless you have the money to fight fire with fire.

Second, managing cryptocurrencies is highly technical, even with the proliferation of desktop and mobile wallet apps. One has to maintain an address or hash which is required so that you can start accepting or paying in cryptocurrency.

As an example, here is my Dogecoin address (tips welcome!): DU7WYCsU1pk2YCtTGAT7jiAC2BXw5yh91u. The address itself uses public key cryptography so one has to make backups to ensure the wallet is safe and secure in the event that your computer or phone gets trashed or stolen. Again, not many people will have the knowledge, if not the patience to use this.

And the last item, viability. Is cryptocurrency a viable alternative to traditional fiat money? Most likely not. It has its merits (quick and easy transactions, designed with the Internet in mind, almost bulletproof security) but has obvious weaknesses (a lost wallet means lost coins forever unless you have a backup, governments don’t want their money getting messed up by something that they have little control, and it is currently very popular among criminal syndicates because of its fast, but not entirely anonymous nature in handling transactions).

Will we see it becoming mainstream in the Philippines? Perhaps when the telcos encourage using it (I’m pretty positive this is more useful than G-Cash or Smart Money, which by the way, are not e-currencies, but just wallets) or BuyBitcoin.ph gets massive support from local retailers.

Like in any startup endeavor or investment, there is always risk. But how you manage risk is up to your own decision. Happy mining!

Sunday, June 9, 2013

My only advice to budding business bootstrappers: accept money only if you need to. Because VC and Angel funding is always a gamble. Also, don't get carried away with the startup rockstar complex. It doesn't last long. Eventually you will have to show you can bring money.

In the end even for startups it's all about bottomline. Start studying your business fundamentals or get someone who knows how. But do remember that you must build a business. Economic indicators will always be in your favor than being an employee.